regressions. Asymmetry and tail expectations are found to be subsumed in volatility expectations and significant co …

Local volatility models are widely used to manage many exotic options in a way consistent with available market prices … of vanilla options. Once calibrated, a local volatility grid can be used in numerical methods such as PDE or Monte Carlo … will be used to hedge those exotic options. Recent approaches in local volatility calibration from sparse market data have …

This article postulates a flexible specification for the implied volatility surface, which accounts for the existence … of volatility skew and term structure. I show that it is possible to express the local volatility function in terms of … the implied volatility. I then obtain an analytic formula for the local volatility function. The resulting local …

idiosyncratic volatility. We contend that at the firm level, the sample correlation between unexpected returns and expected … idiosyncratic volatility can cloud the true relation between the expected return and expected idiosyncratic volatility. We show … strong evidence that unexpected idiosyncratic volatility is positively related to unexpected returns. Using unexpected …

corresponding to the local volatility model that allows pricing quanto derivatives consistently with the observed market equity skew … volatility model to market data and then comparing the prices of European quanto euro derivatives on the Nikkei 225 index with … significant pricing errors when compared with the local volatility model.I also compare the pricing performance of the local …

Heterogeneity in beliefs and time preferences among investors make stock volatility stochastic, even though the … volatility of the underlying dividend is constant. The prices of the European options written on this stock admit closed …-form solutions, hence their hedging deltas. The Black-Scholes implied volatility surface, which depends on wealth distribution …

volatility's hidden state. Stochastic volatility is the unobserved state in a hidden Markov model (HMM), and can be tracked using … density on volatility. Our analysis relies on a specification of the martingale change of measure, which we will refer to as … separability. This specification has a multiplicative component that behaves like a risk premium on volatility-uncertainty in the …